Plan to change the current foreclosure situation - Please contribute ideas

Hi everyone,

We have been working on getting some attention to the foreclosure situation from the local government and lawmakers. Personally I am concerned about the possibility of the government stepping in and doing a bail out of sorts. I believe that if this happens that it will cost us all a lot more in the long run, there has to be a way to work within the current system and come up with a solution that will stop the current rate of foreclosed homes from increasing, increase buyer confidence in the market, stop the high rate of vacancies in certain areas, keep homeowners in their homes, alleviate the pressure on the insurance industry, help the neighborhoods that are hardest hit from becoming rundown and turn this situation around.

I have been looking at the possibility of having the banks recast the loans, I do not think that this should be done in a way that will put homeowners who have been careful and have been able to keep up with their payments at a disadvantage, nor should it be charity. It should be worked out so that they have a fighting chance if they choose to take it to be able to stay, and make it work.

I am looking for some ideas to present, in the hope a viable solution is reached that will effect a huge change.

I was toying with the numbers today for an extension of a loan. For example, J.Doe was OK when the mortgage payment was 1073.64 (5%, 30 year PI for 200,000) and now it has gone to 1467.53 (8% 30 year PI for 200,000). Imagine taking the loan and recasting it out for a longer period, reducing the rate, making it fixed and building the late fees or a cost for the recast into the loan.

I know these next numbers look ugly, but we need to get the banks on board with the idea. If we went with a fixed mortgage at 6% for 45 years on the same 200,000 then they would only have a change in payment from their affordable payment of -1.07 (new payment would be 1072.57), now overall the amount they would pay for the home would increase to 579,187.80 when the very last payment is made on month 540. The rate of 8% and a payment of 1467.53 would have left the bank with a total of 528,310.8 at the end of the 360 payments, so the bank would have actually made an extra 50,877 over the life of the loan. Most homeowners only stay in their home for an average of 9 years so the bank would make more money at any time that they decided to sell. This would keep the owners in their homes, keep the banks from having to carry the costs of foreclosing, keep the insurance companies from having to pay out on the vandalism claims, keep people in their homes, potentially help keep housing prices more stable and neighborhoods from crumbling under the weight of the vacancies and the declining real estate values.

What do you think? Any ideas, suggestions, thoughts, helpful feedback?